For the growing numbers of home purchasers who care about energy efficiency, it’s the ultimate “green” goal: Lenders should recognize the net savings that energy improvements provide to property owners and take them into account when they underwrite and set the fees for mortgages. Appraisers should also recognize the added value.
The rationale: Owners of homes that reduce energy consumption pay lower utility bills than owners of energy guzzlers, so why not factor these out-of-pocket savings into calculations of household debt-to-income ratios and appraised valuations? This might permit larger mortgage amounts for energy-efficient homes and help qualify more first-time buyers who are now frequently rejected on debt-ratio grounds.
Though this is commonplace in other countries, it’s a work in progress in the United States. Bipartisan legislation is pending in the Senate – the Sensible Accounting to Value Energy (SAVE) Act – that would require Fannie Mae, Freddie Mac, the Federal Housing Administration and other federal mortgage players to revise their rules to better recognize and reward energy savings.
More than 125 local Realtor multiple-listing services across the country are helping out by including so-called “green fields” in their online listing information displays. The green fields allow sellers, buyers, realty agents and appraisers to describe energy improvements or special certifications that a property offers, such as high-performance windows and doors, heavy-duty insulation, Energy Star appliances, along with solar, geothermal and other features.
Thousands of appraisers are undergoing “green valuation” training and the country’s largest association in that field, the Appraisal Institute, has created a comprehensive “green addendum” that can be used to translate energy-conservation improvements into higher property valuations.
But there’s just been another milestone on the way to seeing green in real estate: A major American private mortgage insurance company plans to jump into green lending, and is gearing up to offer a version of what it already provides to buyers in Canada – cost savings to energy conservers.